Total net worth of all American households slid last year to levels lower than those of 2004 in the first such decline since 2002. No wonder, then, that even the richest Americans feel less wealthy, and economists like Walter H. Zultowski, PhD., the Phoenix senior vice president who designed and analyzed the survey, are noting a reversal of the “wealth effect” that, in recent years, provided an environment of prosperity, whether real or perceived. “We have entered into a period of ‘negative wealth’ which gives us a unique opportunity to study the attitudes and behaviors of the high net worth in a negative wealth environment,” Zultowski says.
Phoenix’s 10th annual survey was conducted between Jan.30 and Feb. 20 of this year by Harris Interactive and comprised online interviews with more than 1,700 randomly selected individuals with a net worth over $1 million–not including the value of their permanent residence. Results were adjusted to account for the inclusion of additional Gen-Xers and 240 pentamillionaires. The Phoenix Companies, based in Hartford, Conn., is a manufacturer and wholesaler of insurance and annuity products for the high-net-worth market.
The percentage of survey respondents who feel less wealthy jumped to 74% this year–a significant leap from 47% in 2008 and 19% in 2007. While the experts debate the estimated length of the recession, 35% of participants feel the worst is yet to come before the country starts to recover. And 31% anticipate a prolonged economic downturn for the next two years.
The absence of optimism accounts for the fact that every question relating to personal financial security dropped to its lowest level since the survey was introduced a decade ago. The percentage of high net worth who were very optimistic about their personal financial future in 2009 dropped by half over the last two years: Only 17% report a high level of optimism compared to 34% in 2007. Perhaps the most damning response came when asked whether they felt their wealth is “extremely” or “very secure” for the long term. Only 28% said they did–a significant drop from 41% last year and 45% in 2007.
And if you feel that retirement planning is not a major concern of your high-net-worth clients, you may be living in a past era when assets seemed only to grow. Maintaining their lifestyle in retirement continues to be a prominent issue for the affluent, but for the past two years, concern over “outliving my money” took a slight precedence, “a surprising result for high-net-worth clients,” says Zultowski.
With lack of security comes a change in financial priorities. For the second consecutive year, these high-net-worth investors said preservation of assets trumped return on assets–this year by the widest margin, 18 percentage points–since 2003.